ON MONDAY, September
3, it was disclosed that H.J. Heinz Co., a company domiciled in the
USA, had sold its 51% in Olivine Industries, a company incorporated
under the laws of Zimbabwe in which the government of Zimbabwe holds
the remaining 49% shareholding.

The motivation,
structure and financing of the transaction raises more questions that
answers. The timing of the deal and its motivation clearly raises a
number of issues. While the real motivation of the price freeze may
never be known, its causal link with the indigenisation and empowerment
objectives of the government of Zimbabwe needs to be interrogated.

Was the price freeze
used as a preemptive strike for the nationalisation of private assets?
To the extent that Olivine Industries has interests in the manufacturing
of fats, edible oils, and soaps, was Heinz forced out or does the transaction
expose the hypocrisy of multinational corporations in their dealings
with the government of Zimbabwe?

The spokesman of
Heinz, Michael Mullen, had this to say about the transaction: “This
sale is another step in the company's global strategy to drive profitable
growth and innovation in three core categories where Heinz has strong
brands. The decision to sell the business was only taken after a comprehensive
review of all strategic options."

Was the transaction
really motivated by the company’s desire to drive profitable growth
and innovation or was it a response to state pressure? When did Heinz
decide that an investment in Zimbabwe no longer fitted into its strategic
thrust?
It was reported that Heinz sold its interests to Cottco, a company incorporated
under the laws of Zimbabwe. What is interesting is that Cottco was described
as a government controlled company.

However, Cottco
is a listed company whose shareholding is a matter of public record.
The largest shareholder of Cottco is NSSA with a combined stake of 21.31%
followed by Old Mutual Life with an equity stake of 17.47%. The top
ten shareholders of Cottco are as listed below:

SHAREHOLDER

%
HELD

NSSA

18.29

Old
Mutual Life

17.47

Barclay
Nominees

8.62

Burket
Associates

7.76

Remo
Nominees

7.38

Caperal
Limited

5.23

NSSA

3.02

Datvest
Nominees

2.16

Old
Mutual Zimbabwe

1.91

Dinnigan
Investments

1.89

TOTAL

73.73

It is evident from
the above that the government of Zimbabwe is not listed as a shareholder
and yet it was reported that Cottco is a government-controlled company.
What would be the motivation for both Heinz and Cottco to misrepresent
the true nature of the transaction and the parties involved?

There are many
people who naively assume that NSSA is a proxy for the government of
Zimbabwe. NSSA is a body corporate that has a separate and distinct
existence from the government of Zimbabwe. The institution is not funded
by the government but by member contributors. It has its own rights
as set out in the Act of Parliament that established it.

Notwithstanding,
many people including representatives of the government of Zimbabwe
cannot make the legal distinction between the government of Zimbabwe
and NSSA in as much as they cannot make the difference between a company
and its shareholders.

If Cottco is a
private company as shown above, why was it used as an instrument for
acquiring shares in Olivine? In the Herald, it was reported that the
Industrial Development Corporation was the real purchaser, and Cottco
was merely used as an agent.

George Charamba,
the Permanent Secretary in the Department of Information, has also commented
that the negotiations for the disposal by Heinz of its shareholding
were held between the government of Zimbabwe and the American company.

To the extent that
the government is a shareholder in Olivine, it must have a pre-emptive
right on the shares previously held by Heinz. If this is the case, can
such rights be assigned to a third party? It is not clear how or why
Cottco was selected to be a party in the transaction?

According to Cottco,
the motivation of the transaction was to add critical mass to the company
as well as allowing for diversification. If this was the motivation,
why would the Herald suggest otherwise? What was the legal mechanism
used to transfer any rights the government may have had on the Olivine
shares to Cottco?

If the government
has no controlling shareholding in Cottco, what is the connection between
the two parties? The only possible connection is that Sylvester Nguni,
who is now a minister in the government, was formerly a CEO of the company
and is a shareholder. This leads to another question whether he was
involved in the transaction, and if so, what if any does he stand to
benefit personally?

While Cottco and
Heinz maintain that there was no government involvement, it was reported
in the Herald that the deal was the first in a much publicised program
by the government to take over white-controlled (foreign) businesses.

The executives
of both companies have represented that the deal was negotiated months
before plans were announced by President Robert Mugabe earlier this
year to force all businesses to relinquish 51 percent of their ownership
to indigenous Zimbabweans.

Why would Heinz
be party to an opaque deal? The true nature of a deal involving the
externalisation of US$6.8 million by a Zimbabwean private company at
a time when the country is facing a critical shortage of foreign currency
raises a number of questions. How was the shareholding valued? Who authorised
the externalisation of US$6.8 million by Cottco? If Cottco is the true
owner of the shares, how many other companies were offered the same
opportunity to assume the rights belonging to the government for private
benefit? If Cottco was an agent of the government, what was the exchange
rate used to purchase the US$6.8 million used to pay Heinz?

If the deal is
part of the indigenisation program, will all foreign companies be treated
the same way? Was the deal structure influenced in any way by the sanctions
regime? What, if any, are the implications for Heinz to admit that the
true purchaser of the shares was the government of Zimbabwe? If Heinz
can succumb to pressure and companies like Cottco are used as instruments
for nationalisation, what are the implications on the integrity of the
indigenisation program?

It has also been
reported that Cottco was used as an agent for the government because
the government is broke. If the government is indeed broke, what are
the implications of this on the indigenisation program? To what extent
does the deal undermine the rule of law? It is obvious that Heinz is
a beneficiary from the transaction and is unlikely to make any comment
on the state of play in Zimbabwe about the rule of law.

To the extent that
it is more expensive for any local company to be critical of government
actions that undermine the rule of law, the transaction removes from
Zimbabwe any third party voice that could influence the direction of
change. If a company like Cottco can easily be converted into an instrument
of the government, what prospect exists for such a company being an
agent for change of policy in Zimbabwe?

In June 2006, Heinz
wrote down its investment in Zimbabwe citing the "continuing uncertainty
regarding the stability of the currency and economic conditions in the
country," as the cause. Nothing has changed on the economic front
and yet Cottco surprisingly has seen it fit to pay US$6.8 million for
assets that have no value because of economic policies that are not
business friendly.

Cottco’s
operations are underpinned by poor black farmers whose standard of living
has been eroded by hyperinflation. Although Cottco has done well financially,
its core stakeholders continue to be disadvantaged. The shareholders
of Cottco may not agree on the use of their money to buy shares in a
company that the government believes should perform the role of a salvation
army i.e. selling products below cost.

Equally, the cotton
farmers may not necessarily agree that their sweat should be transferred
into shares in a company like Olivine. If the US$6.8 million was used
to support the cotton farmers or pay out to shareholders, it could make
more sense for them.